Only 1 University of Washington Startup for FY 2014

We have been asking whether public universities are honestly reporting their economic development activities, and at least for the University of Washington, the answer is “no.”

The University of Washington released a list of 18 startup companies it claimed to have “launched” in Fiscal Year 14–that would be between July 1, 2013 and June 30, 2014. I previously pointed out the problem with claiming Ennaid Therapeutics. Let’s look at the rest. [I have updated my reporting to account for information that indicates a company started in FY2013 may have received a software license from UW–so perhaps it is UW-launched, but still not in FY2014.]

Of the companies listed, just one of the 18 can be verified to have been started in FY14:

NaviSonics (December 2013)

NaviSonics has a principal executive splitting time as the Chief Medical Officer of both NaviSonics and Aqueduct Neurosciences. [As of November 2018, NaviSonics “headquarters” appears to be a private residence in the woods of west Shoreline, Washington. According to Pitchbook, the company received $500k in funding in 2014 from WRF Capital and/or the W Fund. WRF Capital is a venture capital company formed to manage UW inventions and since transitioned to funding startups in the Seattle area, making an annual payment of income to UW. The W Fund is a spin off created by WRF Capital with investment funds provided by among other institutions, the University of Washington and was managed (in a strange conflict of interest that was approved by UW) by the same person managing UW’s C4C. In 2016, one or both of these organizations made a second investment of $335K. Essentially, UW-affilates have put $835K into Navisonics. The company’s website still consists of the single word “Navisonics.” As one description of the company puts it, Navisonics is a startup in “stealth” mode. Truly.]

What about the rest? Five companies appear to have no launch relationship with UW: Ennaid Therapeutics and Taggpic were started with technologies from other universities and are located in Atlanta and Ithaca, NY (and Taggpic has been purchased by Google–a nice exit for someone, but not UW). Shockmetrics and Spark Medical appear to be decade-old stub companies, built for a purpose and then gone moribund. Medical Models appears to be a 3d printing service bureau that gets image data from clients and prints plastic models of bones. Nice, but where is the UW technology connection? Not apparently the 3d printers. There is no public information but for C4C’s claim that would connect Medical Models with a UW “launch.” If “launch” is taken to mean “created with the intention to turn UW discoveries into commercial products through private initiative,” it is not credible for C4C to list them as UW-“launched” in FY14.

Universal Cells (January 2013) [Acquired by Astellas (Japan) in 2018–so foreign control of any of UW’s inventive work]

Medical Models (April 2013) [I am told there was a UW license to software involved; latest post at web site appears to be 2016; owner also works designing custom vans as of 2018; company appears to be a side consulting/project practice involving modeling and 3d printing–cool, but not much of an economic engine for the state]

[See below for the original documentation for these companies and others. Of the nine here, as of 2018, two have real operations–AnswerDash and MarqMetrix–one has been acquired by a Japanese company for its UW/Fred Hutch technology, one has flipped its licensed technology out of state, three appear to be existing on federal and UW-affiliated grants, and two have no commercial products but appear to offer services. Of the “real” companies, MarqMetrix was formed apparently because UW wasn’t doing anything with the technology UW claimed ownership of. The company exists despite UW’s involvement in IP. That’s one real, cool, bona fide UW-started company from the nine–and that’s a great thing for that company and for UW! And of the others, there certainly is neat technology. But one great company due to UW technology licensing from nine companies not were not even reported for the period in which UW was reporting is not the story UW was promoting–UW simply made fake claims to get attention. It appears that UW didn’t even keep good enough records to be able to report accurately what it was doing with startups–perhaps then UW folks couldn’t even tell what they were faking from what they were bungling.]

Of the four remaining companies claimed by C4C to have started in FY14, here are the actual start dates:

Deurion (March 2011) Moved to Maryland except new CEO

Lodespin Labs (May 2010)

PET/X (January 2012)

VerAvanti (June 2012)

Not UW “launched”:

Ennaid Therapeutics (November 2012)

Taggpic (June 2012)

Shockmetrics (October 2008) Business address is a residence

Spark Medical (April 2001) No company web site

Here then is a summary of 18 companies on C4C’s list:

1 startup in FY14

8 more startups for FY13

4 startups earlier

5 not UW startups

The UW startup figures for FY14 are actually rather dismal, given all the hoopla, and especially all the money C4C has been throwing around, apparently with little state oversight. But what about those FY13 figures? They are looking a bit better–but there’s more to it.

Last year, C4C announced a list of 17 companies it claimed to have started, but a fact check found that only 4 met the criteria. Now we have more information and 8 more companies from FY13. One of these, AnswerDash, has $2.9m in funding in two rounds, much of that from two UW-connected sources, the W Fund and the WRF (which owns the shell company that controls the W Fund). Despite the insider funding, AnswerDash still looks to be a company worth watching.

Thus, we can revise the FY13 startup count to 12–still not 17, but closer than 4. The count, however, is not what counts. C4C is playing the same game that the University of Utah played: create shell companies, claim economic impact, get lots of uncritical press, and induce the state to put more money into the program, use that money to expand operations, create more shell companies, repeat. The program expands–more inventions, more patents, more shell companies–but in terms of productivity, next to nothing.

Repackaging Research as Shell Companies

The problem is not in the counting of “companies”; rather, the problem is the nature of the companies and the context in which companies are announced by a public university. The public idea of a new “company” is something along the lines of “a set of people attracting investment (often their own) to develop and sell products and services.” Most of the companies “launched” by C4C do not meet such an expectation. Instead, they are shells. C4C knows they are shells, but is willing to mislead the press and the public. In some cases (such as NaviSonics, Aquaduct, VerAvantis, Universal Cells, and Stasys), the same person is serving as the CEO or other executive of multiple organizations at once. The UW “startups” clearly are not full-time gigs, with a management team working every day to raise funding, build product, find customers.

No, these are shell companies to hold an opportunity for the future in reserve for selected “partners.” Their immediate and perhaps only use is not to build economic value for the state, but rather to plump up the image of C4C and capture any funds that otherwise might go to academic activities such as instruction (on the premise that self-funding commercialization efforts will produce significant new revenues, some of which may be shared used to support academic activities) or to private entrepreneurs (and so the state competes with its own business community for state dollars allocated to help the business community).

Some of these companies simply repackage academic research. The recipe is: take university faculty working on federally supported research, create a company for them, put some UW money into the company, and then house the company in a UW “incubator” space. The company is simply the same academic people doing the same work, except C4C gets credit for starting a “new company.” BluHaptics, for instance, is listed as a project on the APL-UW web site and C4C has poured funding into the “company” in the form of research and personnel funding, as if C4C is a research sponsor.

These new companies do not appear to have independent management, and appear to have little to no private investment, no new employees, no operations, no economic impact. They are shell companies.

In name, these are companies–with incorporation paperwork, and even a logo or a web site. In practice, however, these are not the companies we are looking for. They are placeholders for companies, shell companies, proto-companies. In the case of Universal Cells, C4C even still holds the domain name. Of course, there are hundreds of such “companies” that might be created. The only limitation is the money to file the incorporation paperwork and the willingness of faculty to divert their efforts from mainstream federal and industry funding to SBIR awards and Life Science Discovery Grants.

Effect of Shell Companies

What is the effect of such shell companies? Clearly, there is no immediate economic impact–no significant investment, no leasing of commercial space, no new jobs, no new products–perhaps just a lingering existence until the small grants from UW run out.

But within the university, and at the university-industry interface, there may be a much more significant, and negative, effect. As research results get tied up exclusively in these shell companies, those results are not available for general use. There is then a dramatic change in the status of publications. If results are published, but the university files patent applications indiscriminately on all such results, then what is the point of anyone reading those publications, except out of envy or to find a way to work around any reported inventions? Think about it: before, a research publication included the idea that others could practice what they learned. Now, in the new regime, research publications–and especially any that report substantive advances in technology–are mere notices.

No one in their right mind would think to take the reported inventions up for use unless they are prepared to take an exclusive commercial license. Otherwise, they are simply setting themselves up to get sued for infringement. (AppliedDexterity appears to support open hardware distribution of results–that would mitigate the impact of proprietary positions, so long as the company research does not build proprietary positions for improvements made in the “company’s” research that otherwise would have been made in open academic research.)

As C4C works the system to capture research IP, then, it is working against publication, instruction, consulting, open dissemination of technology, and ready access to UW resources. If federal grants officers come to discover that UW is pipelining the future results of grants to its own shell companies, federal agencies might take a second look at whether to fund UW proposals. Of course, if the connections are not disclosed in grant proposals, then who would find out?

C4C acts as a public bank for these shell companies, filing and paying for patent applications, allocating public money to companies through the Commercialization Gap fund, the Royalty Research fund, the W Fund, and the Life Sciences Discovery Fund. In these areas, C4C is competing with other uses of those funds. In the case of the Royalty Research fund, taking money from projects that have science or public benefit as their goals, rather than “commercialization.” In the case of the Life Sciences Discovery Fund, competing with private companies.

One might even look more deeply at the source of the public money C4C is using to prop up its shell companies. If the money comes from royalties on inventions made with federal funds, the Bayh-Dole Act restricts the use of such royalties to “scientific research or education.” Commercialization “gap” funds, for instance, could not come from royalties on federal inventions. Do you think anyone at C4C cares?

Below is a table with the 18 companies, their start date as given in publicly available documents, and links to some of those documents so you can check for yourself. The formatting for the table is inconsistent after its import into WordPress. I will see if I can improve it. Also, if I find additional links, I will add them. This information is what C4C should be providing in its reports. Why should we have to dig it out independently?

List of companies. [URLs were active as of July 4, 2014. Some now no doubt are broken.]

Web page up at least as early as Feb 2011?; McMorrow also managing director at McMorrow Research.

http://www.bizapedia.com/wa/VERAVANTI-INC.html

http://www.veravanti.com/

http://www.linkedin.com/company/veravanti-inc

Universal Cells (Jan 2013)

Domain registered to C4C; “development stage company”; tech “based on Intellectual Property developed at the University of Washington”; Mitchell also Director LGMD2I Research Fund; web site crawled Jul-2013; domain created by C4C Jul-2011; company address is residence in Seattle [Update above]